Incident: The company released its 2023 quarterly report: 23Q1 Company achieved revenue of 916 million yuan, -12.49% year on year; Guimu's net profit was 225 million yuan, +85.48% year on year. Net profit of the non-return mother was 119 million yuan, +2.00% year on year.

Revenue from the main business of tobacco labeling in 23Q1 was under pressure, and the company accelerated the transformation of the integrated materials side to open up room for growth. Tobacco labeling: The decline in revenue in 23Q1 was determined mainly because the cigarette labeling business affected the winning bid price due to increased competition in the industry. Moreover, the first quarter was a traditional low season for the printing industry. As demand in the downstream market picked up in the second quarter, new orders are expected to increase. The company accelerated its transformation into a comprehensive service provider for new energy materials, accelerated the layout of Class I pharmaceutical packaging materials, and created profit growth points. New membrane materials: Diaphragms are currently in a recovery period, and orders for 22Q2 are expected to increase. Production capacity for high-barrier, degradable films has not yet been released, and Bosheng's new material diaphragm business is on a rise in production capacity. It is expected that the release of production capacity in 2023 will drive revenue growth month by month; medicine packages: Class 23Q1I pharmaceutical packaging materials are growing rapidly (mainly aluminum foil and injection molded parts), thanks to continuous improvements in product and customer structures. In the future, the company will increase its investment in Class I pharmaceutical packaging materials, vigorously expand the customers of foreign-funded pharmaceutical companies, and lay out commonly used pharmaceutical packaging. Follow-up orders may appear. It is expected that subsequent products and customer structures will continue to be optimized, and production capacity increases will accelerate development.

Proceeds from asset disposal have increased profits dramatically, production and sales of Bosheng New Materials have expanded, and accounts receivable have increased. 23Q1 gross profit margin was 27.84%, -4.33 pcts year over year. It was determined that the decline in gross margin was mainly due to increased competition in the industry, which led to a drop in the winning bid price for tobacco bids, as well as the weakening of the scale effect of differentiated substrates and functional films of new materials, and the unrelease of high-barrier film production capacity. The 23Q1 company's net interest rate was 25.10%, +13.26pcts over the same period last year.

The sharp recovery in net interest rates was due to 1) Hunan Furui, a wholly-owned subsidiary, transferred some assets such as land use rights, buildings and ancillary facilities, equipment, etc., with 23Q1 asset disposal proceeds of 125 million yuan; 2) the company's investment projects were withdrawn one after another; 3) the company's investment projects were withdrawn one after another; 3) The low base for the same period last year, the decline in Nai Xue's tea valuation of the 22Q1 investment project dragged down performance. Net income from 23Q1 investment was 9.864 million yuan, a significant increase from -60.279 million yuan in the same period last year. The 23Q1 company's sales/R&D/management/finance expenses rates were 2.28%, 4.15%, 11.93%, and -0.05%, respectively, compared to -1.19 pcts, +0.48pcts, +1.71 pcts, and +0.28pcts. Net cash flow from the company's 23Q1 operating activities was $229 million, compared with -403.16% year on year. The main reason was that current customers of Hunan Furui, a wholly-owned subsidiary of the company, extended payment times, and the expansion of production and sales scale of Bosheng New Materials, a holding subsidiary. Customers used the “Dchain” payment method to increase accounts receivable. Accounts receivable in 23Q1 were $735 million, +3.80% year on year, up 24.72% from the end of 2022.

Investment advice. The company has been deeply involved in tobacco labeling for 30 years. It is a first-tier enterprise in the tobacco label industry, and has advantages in the industry chain and scale. The company accelerated the layout of the pharmaceutical packaging industry for new materials and pharmaceutical packaging class I, expanded the high growth track with high added value, and opened up room for long-term growth. I'm optimistic that the month-on-month release of new material production capacity in 2023 will drive performance growth. Net profit is expected to be 4.6/55/ 570 million yuan in 2023-25, corresponding to the current stock price PE of 17X/16X/14X, maintaining the “buy” rating.

Risks suggest that raw material prices fluctuate, new business growth falls short of expectations, and investment returns fluctuate greatly.